Individual investors move the gold market

May 6th, 2019

The World Gold Council likes to emphasize central bank gold buying. However, central banks are not the main drivers of gold demand. Individuals are.

In the 1st quarter this year, CBs bought 145.5 tons of gold, for the biggest Q1 increase since 2013. As the WGC sees it, diversification and a desire for safe, liquid assets were the main reasons for the buying.

As for individual investors, however, they purchased 257.8 tons of coins and bars, 112.3 tons more than what CBs purchased.

Still, gold demand for the jewelry industry is the 800-pound gorilla in the market. The jewelry sector took down 530.3 tons in the 1st quarter, just a little more than in Q1 2018.

Individuals turn to gold for several reasons, but fear is the most commonly cited, fear of inflation, fear of stock market losses, and fear of economic meltdowns. The official inflation rate is slightly higher than 2%, not enough to scare anyone.

Stocks are doing well, having climbed nicely from their December 2018 decline. Still, stocks have not bested their October 2018 highs, which is a key factor to consider. The longer stocks go without taking out the October highs, the more likely we’ll see them turn down.

And, for the final major fear, economic meltdown, the Bureau of Economic Analysis recently reported that GDP grew 3.2% in the first quarter. However, according to GDPNow, which is monitored by the Atlanta Federal Reserve Bank, the GDP is on track to post a gain of only 1.7%. (GDPNow is updated as new data is received about the 13 components.)

If the economy slows and the Fed returns to a loose monetary policy, gold and silver will do well for fear of inflation and the slowdown. Stocks may hold their own, but still there will be investors who move from stocks to the metals.

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